Skills shortages contributing to a slowdown in the construction sector in July pose a ‘serious challenge’ not only to the industry but the economy as a whole, according to PricewaterhouseCoopers (PwC).

The publication on Monday of the Markit/Chartered Institute of Procurement & Supply (CIPS) UK Construction Purchasing Managers’ Index for July identified reduced growth in the construction sector.

The Index reveals ‘a slight overall loss of momentum’ across the sector, a report accompanying the statistical release said.

The report also highlights the fact that skill shortages contributed to a subcontractor availability dropping for the twenty-fifth month running in July, the longest continuous period recorded by the survey for over a decade. Job creation across the sector remained ‘strong’, the document said.

Chris Temple, engineering and construction leader at PwC, said: "On the whole, these figures don't sway us from our view that the construction sector will experience healthy growth this year. However, the ongoing skills shortage is an area of concern.

"The sector has serious skills gaps, and while the government's plan to create three million more apprentices by 2020 will help in the long term, the situation will get worse before it gets better as older skilled workers retire.

“The shortage is also driving up subcontractor bills and this, combined with continuing rises in the prices of construction supplies, means firms may continue to feel pressure on margins.

"This is of course a serious challenge for the construction industry but it has wider implications for the rebalancing of the economy. In particular, it will continue to put the brakes on the build of new affordable housing [that] is in such critical demand.

“In addition, it may result in lower overall construction growth than could be achieved if labour was in plentiful supply."

The report also says that previous to the release of the results for July, increases in levels of output were recorded in each month since May 2013. The latest figures recorded lower than the average growth over this period, which stands at 59.4.

Residential building remained the fastest growing area of the sector, though it saw the greatest loss of momentum since June, compared to other sectors. Work on commercial projects rose at the fastest rate since March, however.

Fifty-five per cent of UK construction companies expect an increase in business activity over the next 12 months, while 4% forecast a reduction in activity.

David Noble, group chief executive officer at the CIPS, said: “The sector almost held steady last month, though there will be some uneasiness over the housing sector exhibiting its second slowest activity growth in the last two years.

“Budget cutbacks and delayed decision-making will have had some impact on civil engineering activity and though housing is still a strong performer, commercial activity was the only area to see faster growth in July.

“Overall the sector’s optimism was still strong, as staffing levels remained high in anticipation of future success, though issues around sourcing skilled individuals remained a thorn in the side of the sector.”